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Fiscal effect from inflation targeting: the Brazilian experience

Helder de Mendonça () and Rubens Teixeira da Silva

Applied Economics, 2009, vol. 41, issue 7, 885-897

Abstract: This article evaluates the presence of possible unpleasant effects on the fiscal side due to a disinflation process initiated with the adoption of inflation targeting in Brazil. The analysis for this country deserves attention because, credibility is still being built and Brazil represents a potential laboratory experiment in which the effects of an adoption of inflation targeting, after more than half a decade, can be studied. Under this perspective, an empirical analysis based on OLS, GMM and VAR methods is made. The findings denote that the development of credibility is a powerful instrument for eliminating the unpleasant effects from a tight monetary policy (necessity of increasing primary surplus) on public debt.

Date: 2009
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Handle: RePEc:taf:applec:v:41:y:2009:i:7:p:885-897